Dr. T.K. Vijay Kumar Dr. T.K. Vijay Kumar. © Dr. T.K. Vijay Kumar Strategic planning has taken on new importance in today’s world of :- Globalization,

Strategic Management

Module ~ 4

Dr. T.K. Vijay Kumar

Generic Competitive Strategies

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Strategic planning has taken on new importance in today’s world of :-

Globalization, Deregulation, Advancing Technology, Changing Demographics, and

Lifestyles.

Strategic Planning

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Strategies (Alternatives) Defined with Examples

Copyright ©2013 Pearson Education

© Dr. T.K. Vijay Kumar Copyright ©2013 Pearson Education

Strategies (Alternatives) Defined with Examples

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Generic Strategies

Differentiation

Low-cost leadership

Focus

Which hat is

unique?

Which hat is Unique?

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Generic Competitive Strategies --

–Lower Cost strategy• Greater efficiencies than competitors

–Differentiation strategy• Unique/superior value, quality, features,

service

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PORTER’S GENERIC STRATEGIES

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General plan of major action to achieve long-term goals

Falls into three general categories1. Growth2. Stability3. Retrenchment

Grand Strategy

A separate grand strategy can be defined for Global Operations

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Growth can be promoted internally by investing in expansion or externally by acquiring additional business divisions

- Internal growth = can include development of new or changed products

- External growth = typically involves diversification – businesses related to current product lines or into new areas

Grand Strategy: Growth

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Stability, sometimes called Pause strategy, means that the organization wants

◦to remain the same size or

◦to grow slowly and in a controlled fashion

Grand Strategy: Stability

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Stability Strategies

Pause

Proceed-with-caution

No change

Profit

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Diversification is a form of corporate strategy for a company. It seeks to increase profitability through greater sales volume obtained from new products and new markets. Diversification can occur either at the business unit level or at the corporate level. At the business unit level, it is most likely to expand into a new segment of an industry that the business is already in. At the corporate level, it is generally via investing in a promising business outside of the scope of the existing business unit.

Diversification is part of the four main growth strategies defined by the Product/Market Ansoff matrix

Grand Strategy: Diversification

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Strategies in Declining IndustriesIn

ten

sity

of

Co

mp

etit

ion

in

Dec

linin

g In

du

stry

Few strengths Many strengths

High

Low

DivestQuickly

Nicheor Harvest

Harvestor Divest

Leadershipor Niche

Leadership: Seek a leadership position in terms of market share.Niche: Create or defend a strong position in a particular segment.Harvest: Manage a controlled disinvestment, taking advantage of strengths.Divest Quickly: Liquidate the investment as early in the decline as possible.

* Value-Add Info.

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The organization goes through a period of forced decline by either shrinking current business units or selling off or liquidating entire businesses

Retrenchment Reduction of expenditures in order to become financially stable. ~ Cutting down or back; reduction, ~ Curtailment of expenses. i.e.,

Downsizing and Curtailment Liquidation

Selling off a business nit for the cash value of the assets, thus terminating its existence

Divestiture Selling off of businesses that no longer seem central to the corporation

Grand Strategy:Retrenchment, Liquidation Divestiture

* Value-Add Info.

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Retrenchment Strategies

Turnaround

Captive

Divestment

Bankruptcy

Liquidation

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A corporate conglomerate is an

organizational structure

made up of SBU’s

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Strategic Business Unit (SBU)

Independent Product-Market unit with:

1. Unique mission2. Identifiable competitors3. External market focus4. Control of its business functions

4.8 Strategic Business Unit p. 89

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Purpose of Strategy

The plan of action that prescribes resource allocation and other activities for dealing with the environment, achieving a competitive advantage, that help the organization attain its goals

Strategies focus on:●Core competencies●Developing synergy●Creating value for customers

* Value-Add Info.

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Competitive advantage is what allows a firm to gain an edge over its Rivals in attracting Customers and Defending against Competitive forces.

Key challenges of competitive advantage:

1. Build Advantage2. Extend Advantage3. Organize for Advantage4. Sustain and Renew Advantage

Strategy & Competitive Advantage

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NPD Quality Superior customer service Achieving lower costs Better geographic location Technical expertise Supply chain management Brand image / reputation

Many routes to Competitive Advantage

* Value-Add Info.

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The Competitive StrategiesM

ark

et

Targ

et

Type of Advantage Sought

Overall Low-CostProviderStrategy

BroadDifferentiation

Strategy

FocusedLow-CostStrategy

FocusedDifferentiation

Strategy

Best-CostProviderStrategy

Lower Cost Differentiation

BroadRange of Buyers

Narrow Buyer

Segmentor Niche

* Repeat Info.

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Strategic Analysis and Decision Making

Methods of Analysis to find and select strategies:

Cluster Analysis

TOWS Matrix

SPACE matrix (Strategic Position and Action

Evaluation Matrix) Portfolio Analysis

Boston Consulting GroupIE (Internal and External) Matrix-- For class use the General

Electric Business Screen (an IE-type matrix)

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Cluster Analysis and TOWS

Cluster Analysis is the bringing together of the most important Strengths, Weaknesses, Opportunities and Threats to identify problems. (Core and Distinctive Competencies and Critical Success Factors are likely to be in your Cluster Analysis.)

Cluster Analysis or clustering is the task of grouping a set of objects in such a way that objects in the same group {Ref: Positioning Grid}

When you make a matrix out of SWOT items it is called a TOWS matrix which identifies potential strategic alternative types--SO, WO, ST, WT ( strategies).

* Refer Mod-1

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TOWS

TOWS MATRIX is not used to pick alternatives but to give an idea of potential problems, and opportunities and the strategies to overcome or exploit those Opportunities and Threats.

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The TOWS Matrix

List strengths List weaknesses

STRENGTHS - S WEAKNESSES - W

OPPORTUNITIES - O SO STRATEGIES WO STRATEGIES

THREATS - T ST STRATEGIES WT STRATEGIES

List opportunitiesUse strengths to take

advantage of opportunities

Overcome weaknesses by

taking advantage of opportunities

List threats Use strengths to avoid threats

Minimize weaknesses and

avoid threats* Repeat Info.

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Portfolio AnalysisTreats product lines or SBU’s as

potential investments.Portfolio Analysis methods include:

Boston Consulting Group (BCG)-Growth Share Matrix—This company is one of largest strategic consulting companies in U.S.

GE Matrix (Similar to IE Matrix–value of the GE Matrix over IE Matrix is that once you plot your company on the Matrix, locations on matrix are associated with best strategies to pick, and types of strategic leadership to initiate strategy.)

Product/Market Evolution Matrix (Not in text)

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The BCG MatrixThe BCG Matrix

Relative Market Share Position in the Industry

Industry Sales Growth Rate (Percent)

High +20

Medium 0

Low -20

High Medium Low

1.0 .50 0.0 Question Marks (I)

Dogs (IV)

Stars (II)

Cash Cows (III)

?

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BOSTON CONSULTING GROUP (BCG) Quadrant-I --Question Marks ?

Low Market share, Hi Growthuse intensive strategies such as market penetration, market

development, product development Quadrant II, Stars

High Industry Growth RateUse backward and forward integration, horizontal integration, market

penetration, market development, product development and joint ventures

Quadrant III, Cash Cows – High Market Share, Low Industry Growth Rate

Use Product Development or Diversification

Quadrant IV, DogsLow industry Growth Rate, and Low Market Share

Use retrenchment, liquidation, divestment

* Value-Add Info.

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Portfolio Analysis using General Electric Business Screen, similar to IE Matrix in text.

Uses industry attractiveness and business competitive strength on axes

Circles represent industry sales, wedge represents companies share of market

Product or SBU position on graph indicates type of strategy likely to be best choice.

We can use IFE weighted score and EFE weighted scores for axes

* Value-Add Info.

© Dr. T.K. Vijay Kumar

General Electric Business Screen

AWinners Winners

B

C

Question Marks

D

F

Average Businesses

EWinners

Losers

GLosers H

LosersProfit

Producers

Strong Average Weak

Low

Medium

High

Business Strength/Competitive Position

Indu

stry

Att

ract

iven

ess

Source: Adapted from Strategic Management in GE, Corporate Planning and Development, General Electric Corporation. Used by permission of General Electric Company.

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Business Strengths / Competitive Position Strong Average Weak

Growth Market/product

Development Concentration via

Vertical Integration

Growth Market/product Development

Concentration via Horizontal Integration

Retrenchment

Turnaround

Stability

Pause or Proceed with Caution

Growth Concentration via

Horizontal Integration Stability

No Change in Profit Strategy

Retrenchment

Captive Company or Divestment

Growth

Concentric Diversification

Growth

Conglomerate Diversification

Retrenchment

Bankruptcy or Liquidation

High

Medium

Low

Ind

ust

ry A

ttra

ctiv

enes

s

* Value-Add Info.

© Dr. T.K. Vijay Kumar

Internal Factor Evaluation (IFE)

Internal Factors Weight RatingWeighted Score Comments

1 2 3 4 5

1.00

Strengths

Weaknesses

Total Weighted Score

* Value-Add Info.

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Continuum of Partnership Strategies

Organizational Combination

Strategic Alliances

Preferred Supplier Arrangements

Strategic Business Partnering

Mergers

Acquisitions

Low High

Joint Ventures

Degree of Collaboration

De g

ree

of C

oll a

bor a

ti on

* Value-Add Info.

© Dr. T.K. Vijay Kumar

Financial Restructuring and Turnaround Strategies

Turnaround is the process of corporate renewal and involves planning and analytical tools to save troubled companies and return them to solvent position

To identify the reasons of financial distress

Characteristics of a successful Turnaround plan Employment of Business Consultant, Turnaround specialist, Interim

CEO/Turnaround CEO, Accounting firm, Legal firm and Public Relations Firm Predicting financial distress through ratio analysis Considering financial and non-financial aspects of the business Expert turnaround team- business knowledge, expertise and experience

Turnaround Strategies Revenue Enhancement- Improvement of systems, processes and

technology Cost Reduction Asset Reduction- Portfolio disinvestment through selling off assets is used as

mechanism to raise cash for the turnaround

* Value-Add Info.

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LeadershipStructural design Information and control systemsHuman resources

Implementing Strategy Tools

* Value-Add Info.

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